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BusinessDay www.businessday.co.za Thursday 20 February 2025
INSIGHTS
TRADE FINANCE
YOUR TRADE SUCCESS. C OUR AFRICAN NETWORK. T Terms and conditions apply. Authorised financial services and registered credit provider (NCRCP15). The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). GMS-27035 02/25
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Trends shaping trade finance in Africa
Financiers •must find
solutions that are relevant to and suitable for an African trade landscape, writes Lynette Dicey
T
rade on the African continent is on the rise. This is despite a confluence of global geopolitical tensions, inflation stemming from commodity price changes and currency devaluations, muted foreign currency availability in some instances, as well as constrained logistical infrastructure development. As a result of these
challenges, corporates operating on the continent have had to shift their way of working and themselves to become more agile. Amish Shunker, head of trade for Africa at Standard Bank, says trade financiers have accommodated this shift, becoming more nimble to support the ongoing demand for goods and services needed to sustain Africa’s growing needs.
“Some of the more prevalent trends observed with our clients trading on the continent can be summed up in a few key themes. The first of these is cost,” he says. “Inflation stemming from soaring commodity prices, sovereign debt repayments, interest rate adjustments — albeit that monetary policy revisions are curbing these escalations of late — and costs of shipping and
freight, have resulted in many clients changing the way they procure. In the past, the importation of certain raw materials was business as usual. However, import substitution has now become a reality in many markets. Efforts are being made to manage costs more efficiently and new, arguably more sustainable, supply chains are being developed.” To better manage costs,
clients are predicating their actions on two key initiatives, which is, in turn, giving rise to two secondary trends. “First, clients are working to implement time-base efficiency to reduce lead times to access working capital and, in turn, inventory or core inputs. This is driving the shift towards technology and digitalisation,” says Shunker. He says that while there is
yet no global or African-based standard linked to digitalisation or cloud-based computing and data storage, banks with a digital interface offering working capital financing including letters of credit or supply chain finance solutions are better placed relative to competitors without a digital interface. The second trend linked to cost management is associated with the integration of the supply chain. Efforts to enhance trade finance services and solutions provided by a bank must be inclusive of the value chain, says Shunker. “Although horizontal and vertical integration continues to be a key corporate activity, clients are requesting that any digital initiatives take into account their commercial counterparty’s needs, thereby further integrating them into the financial supply chain. This has led to a lot more co-creation of technology-based solutions and platforms with state-owned entities as well as corporateand SME-type clients.” Involving client counterparts in the development of trade finance solutions shows just how important these entities are in the value chain, he adds. Another increasingly prevalent trend is the need to act and transact in a responsible way. This responsibility extends to the people and communities where the bank’s clients operate, the environment and the ethics, laws and regulations that govern their industries. “As clients look to improve their operating activities in line with ESG objectives, banks are being compelled to develop relevant solutions in a form and construct that is globally acceptable and noncontentious. The deployment of green guarantee solutions and sustainability-linked working capital financing, for example, is testament to the change we have seen on the continent. While adoption levels and momentum has varied across the 18 African markets in which we operate, this continues to be a daily business conversation in our engagements with clients.” Commenting on credit capacity and risk appetite, Shunker says client requests for treasury and trade facilities continues to increase which means that banks need to find
Amish Shunker. ways to respond appropriately. “Structured trade finance solutions and supplier financing — the latter as a form of inclusive banking — can be touted as strong responses from the banking fraternity; however, risk appetite can be easily overwhelmed with certain sector concentrations.” The solution, he says, is financial institution collaboration and partnership. “Post Covid, the advent of the most recent BAFT Master Risk Participation Agreement has made it more efficient for commercial banks to enhance constrained credit capacity by risk transfers and sell-downs. This is likely something that the trade finance fraternity will need to do more of to support growth on the continent. Beyond this, though, partnering with development banks and multilateral agencies will become the order of the day. Strategically important imports in Eastern and Southern Africa are already predicated on their participation.” To enable trade in Africa, he says it will be important for those trade finance providers with boots and services on the ground to garner the support and appetite from development agencies in a way that suits the client and their value chain. “As home to the largest trade block in the world, with a growing young population and an abundance of natural and human resources, trade in Africa has the potential to grow exponentially. Trade financiers, however, need to be mindful of what they invest in and develop solutions that are both relevant to and suitable for an African trade landscape,” says Shunker.
AfCFTA aims to boost trade on the continent
Terms and conditions apply. Standard Bank is an authorised financial services and registered credit provider (NCRCP15). The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). GMS-27035 01/24
Global trade is a key driver of economic growth and poverty reduction. A significant portion of this trade, estimated to be about 80%, relies on financing. However, around the world, a substantial trade finance gap persists, reaching an estimated $2.5-trillion in 2022, a 47% increase from 2020. Development finance institutions play a critically important role in addressing this gap by providing financing to underserved institutions and offering technical assistance and capacity building to help developing market banks meet international standards. The trade finance gap is particularly prevalent in Africa where it is estimated that the shortfall has grown to about $120bn, driven primarily by global de-risking practices. This has made it harder for small and medium-sized businesses to access the necessary finance to conduct intra-African trade. Currency shifts, economic volatility and inflation are just some of the complexities small and medium-sized businesses need to navigate when applying for trade finance. Despite an increase in Africa’s share of the global population, the continent’s
share of global trade has not grown and although intra-African trade is growing slowly, that growth is off a very low base. The Afreximbank Africa Trade Report 2024 says intra-African grew 3.2% in 2023 to $192.2bn. One of the drivers for this growth is the African Continental Free Trade Area (AfCFTA) which became operational in 2021. AfCFTA aims to promote trade and economic growth by removing tariffs and nontariff barriers. The agreement is expected to boost intra-African trade which has traditionally been much lower than other regions, consolidate a market of 1.3-billion people with a combined GDP of $3.4-trillion and increase the continent’s tax base. The World Bank estimates the free trade area — the largest one globally — could increase Africa’s income by $450bn by 2035, potentially lifting 30-million people out of extreme poverty. The full potential of AfCFTA has still to be realised, however, with only 60% of countries initiating trade under the agreement. Challenges inhibiting trade include a lack of sufficient infrastructure as well as logistics and regulatory barriers.